Dollar Weakens on Speculation Fed to Maintain Stimulus Measures

By Matthew Brown and Ron Harui

Nov. 23 (Bloomberg) -- The dollar fell for the first time in three days against the euro on speculation the Federal Reserve will keep its stimulus measures in place and ensure interest rates remain low.

The U.S. currency slid against all but one of its 16 major counterparts after Fed Bank of St. Louis President James Bullard said in New York yesterday that he supported extending the central bank’s purchases of mortgage-backed securities beyond the first quarter of next year. The yen weakened as commodities and stocks advanced, boosting demand for higher-yielding currencies such as the South African rand.

“The central bank language at the moment is still pretty dovish and that’s making riskier assets more attractive than the dollar into the end of the year,” said Mark O’Sullivan, director of dealing in London at Currencies Direct Ltd.

The dollar weakened the most in two weeks to $1.4975 per euro as of 10:41 a.m. in London, from $1.4862 in New York last week. The yen depreciated to 133.10 versus the euro, from 132.09, and was unchanged at 88.88 per dollar. The South African rand was the biggest gainer versus the dollar, strengthening 1.5 percent to 7.4960.

The Dollar Index, which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, declined 0.8 percent to 75.078. It slid to 74.679 on Nov. 16, the lowest level since August 2008.

Fed’s Bullard

U.S. policy makers repeated on Nov. 4 that they will complete the Fed’s planned $1.25 trillion in purchases of mortgage securities by March and said they will buy $175 billion of agency debt, down from a previous maximum of $200 billion. They kept their benchmark rate in a range of zero to 0.25 percent and repeated borrowing costs will stay low for an “extended period.”

In his speech, Bullard said “unemployment is high, and labor markets are lagging,” while repeating his view that the economic recovery in the U.S. has started.

Futures contracts on the Chicago Board of Trade on Nov. 20 showed a 32 percent chance the Fed raise rates by June, down from 68 percent odds a month ago.

The yen and dollar also declined as gold climbed to a record and shares advanced for the first time in three days. Bullion for immediate delivery rose as much as 1.5 percent to $1,167.88 an ounce, and the MSCI World Index jumped 0.9 percent.

Low Rates

Benchmark interest rates are as low as zero in the U.S. and 0.1 percent in Japan, compared with 3.5 percent in Australia, attracting investors to the South Pacific nation’s higher- yielding assets.

Futures traders decreased bets the euro will strengthen against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission showed on Nov. 20.

The difference in the number of wagers by hedge funds and other large speculators on an advance in the euro compared with those on a drop -- so-called net longs -- was 11,956 on Nov. 17, compared with 25,173 a week earlier.

Investors locking in gains in December won’t be enough to strengthen the dollar into year-end, and history shows that the euro tends to rise against the U.S. currency in December, Steven Barrow, head of group of 10 currency strategy in London at Standard Bank Plc, wrote in a research report today.

‘Ample Liquidity’

“The ample provision of global liquidity, through central- bank action and dollar weakness is not turning around,” Barrow wrote. “Given that the dollar has spent most of its life falling, a strong euro seasonal in December does not seem to be consistent with the idea of year-end profit-taking.”

The euro advanced against the yen for the first time in three days on speculation the European Central Bank will gradually end its stimulus measures. The ECB last week tightened the rules for the collateral it accepts against loans as it tries to restore the “proper functioning” of markets and prepares the ground to slow unconventional liquidity programs.

“Most guesses are that the ECB will provide one or two six-month fixed rate operations,” Brown Brother Harriman & Co. strategists led by Marc Chandler in New York wrote in their daily currency report today. “That overall shift in emphasis to looking at an exit policy should see the euro supported by interest-rate differentials against both dollar and sterling.”

The euro extended its gains as reports showed Europe’s services and manufacturing industries expanded at the fastest pace in two years in November.

A composite index based on a survey of purchasing managers in both industries in the 16-nation euro area rose to 53.7 from 53 in October, London-based Markit Economics said today in a statement. A reading above 50 indicates expansion. Economists had projected the index would rise to 53.4, according to the median of 16 estimates in a Bloomberg News survey.

To contact the reporters on this story: Matthew Brown in London at mbrown42@bloomberg.net; Ron Harui in Singapore at =1161 or rharui@bloomberg.net

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Philippines Rice Imports May Be 10% of Global Trade

By Luzi Ann Javier and Cecilia Yap

Nov. 23 (Bloomberg) -- Rice imports by the Philippines, the world’s biggest importer, may account for as much as 10 percent of next year’s global trade after storms destroyed crops, draining supplies and driving prices higher.

Rice futures advanced today after the Southeast Asian nation said it may purchase a record 3 million tons next year in a “worst case scenario,” National Food Authority spokesman Rex Estoperez said today. Global trade is estimated by the U.S. Department of Agriculture to be 29.5 million tons in 2010.

Rising Philippine imports may extend a rally in prices, which have jumped 37 percent from this year’s low in March, as drought in India slashes production, fueling speculation that the country will be a net importer for the first time in more than two decades. Rice surged to a record last year as concerns over food shortages prompted countries like India and Vietnam to curb exports, sparking food price riots across the globe.

“When you get into a tendering procedure, there is always a multiplier effect which artificially pushes the market up,” Shahzad Naqi, chief executive officer of Peak Holding Pvt., a Karachi-based rice exporter, said by phone today. “Whenever there are 10 suppliers offering 100,000 tons each, they are drawing down” supplies, he said.

The Philippines issued its fourth tender today for next year’s rice supplies, seeking offers for 600,000 metric tons on Dec. 15, according to a National Food Authority notice in the Philippine Daily Inquirer newspaper.

The country is advancing imports after recent storms destroyed 1.3 million tons of rice. The latest tender takes planned purchases for 2010 so far to 2.05 million tons.

‘Multiplier Effect’

Imports may be to 2.4 million tons next year, from 1.78 million tons this year, if next year’s first harvest meets the government target, Estoperez said.

“You never know what will happen next year; there could be another typhoon or El Nino,” taking the nation’s imports to 3 million tons, Estoperez told reporters in Manila today.

“We’re taking advantage of the better price,” National Food Deputy Administrator Vic Jarina said today. “Other countries are not in the market yet and the price is good. We foresee maybe next year India will come in and prices will go up.”

Rice futures for January delivery traded in Chicago advanced as much as 1 percent to $15.32 per 100 pounds at 5:43 p.m. in Singapore. The price reached a record $25.07 in April 2008. The export price of Thai 100 percent grade-B white rice, the regional benchmark, has gained 6.9 percent to $561 a ton from this year’s low of $525 in October.

Indian Imports

India won’t import rice because it has adequate supplies to meet demand, Trade Minister Anand Sharma said on Nov. 20, days after saying the country was in talks with Thailand and Vietnam, the two biggest exporters, to buy grain.

Thailand’s Prime Minister Abhisit Vejjajiva said Nov. 18 that India was seeking to buy a total 2 million tons in government-to-government contracts.

Philippine imports of 2 million tons may be enough to cover the nation’s requirements at the start of 2010, said Jarina, who chairs the committee that buys rice for the government. The inter-agency panel may decide to purchase more depending on the outlook for crops.

Still, three record tenders scheduled between Dec. 1 and Dec. 15 totaling 1.8 million tons may test exporters’ ability to draw enough supplies to meet Philippine needs, Naqi said.

“Either they don’t get the total quantity, or they get a higher price, or they may go to government-to-government negotiations,” Naqi said, referring to the tenders.

The National Food Authority wants the 25 percent broken white rice delivered between February and May next year and has set a budget of 15.26 billion pesos ($325 million), the state- run food buyer said.

The Philippines purchased 250,000 tons in a tender earlier this month.

To contact the reporters on this story: Luzi Ann Javier in Singapore at ljavier@bloomberg.net; Cecilia Yap in Manila at cyap19@bloomberg.net

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Palmer Open to Talks With Rinehart on Coal Mine Plans

By Jesse Riseborough and Heidi Couch

Nov. 23 (Bloomberg) -- Billionaire Clive Palmer would consider sharing port and rail lines with Australia’s richest woman Gina Rinehart to cut the combined A$15 billion ($14 billion) cost of their two Queensland coal projects.

“If she’s got a couple of billion dollars and she’d like to put it down on the table, we’re happy to share infrastructure,” Palmer, 55, said in an interview in Brisbane, adding he hasn’t had talks with Rinehart. “If she hasn’t got the cash we’ll have to wait until she gets it.”

Palmer and Rinehart are seeking to fund coal and iron ore projects in partnership with Chinese state-owned enterprises to tap surging demand after iron ore and thermal coal prices tripled this decade. Palmer is seeking as much as $3 billion in the initial public offering of Resourcehouse Ltd. in Hong Kong.

“There’s scope for savings on both ends, it is just a matter of whether they can come to commercial terms” on port and rail, said Andrew Harrington, an analyst at Patersons Securities Ltd. in Sydney. “If you’ve got more trains running on the same bit of track it makes the unit costs lower so I think there is scope for savings.”

Resourcehouse is aiming to start building the China First coal mine, port and rail project in the Galilee Basin in Queensland next year and has agreed sales accords with Metallurgical Corp. of China Ltd., which will also help arrange financing.

“China First coal has got the right to mine 1.4 billion tons of coal, which is enough to keep Hong Kong fires burning for the next 20 to 40 years,” Palmer said in the Nov. 20 interview. “That’s just the beginning.”

Rinehart’s Project

Rinehart’s Hancock Prospecting Pty. is seeking to start a coal project in 2012 and has sought Chinese partners to help develop it. Hancock director Tad Watroba couldn’t immediately be reached for comment.

Palmer has been gauging demand for a $2 billion to $3 billion Hong Kong IPO for Resourcehouse being managed by UBS AG and Macquarie Group Ltd., according to a preliminary share sale document e-mailed to fund managers Nov. 9. It’s in talks with Export-Import Bank of China for A$5.5 billion in debt funding for the coal project and has signed sales accords with unidentified Chinese state-owned power companies, Palmer said.

China Metallurgical has agreed to buy a 10 percent stake in the project for between A$700 million to A$800 million. It’s also agreed to purchase 75 percent of the estimated 40 million tons a year in sales from the mine, he said.

Fortune Doubled

Palmer, Australia’s fifth-richest person and chairman of Resourcehouse, was the only person in the top-10 of Business Review Weekly Magazine’s annual rich 200 list whose wealth increased last year. Palmer’s fortune more than doubled to A$3.4 billion, according to the list that was published in May. He also owns the Gold Coast United soccer club.

Rinehart is chairwoman of closely held Hancock, founded by her father Lang who discovered the mines that made Australia the world’s biggest iron ore exporter. She is Australia’s fourth richest person with an estimated wealth of A$3.5 billion.

Hancock’s Alpha mine is estimated to produce 30 million tons of power station coal a year for at least 30 years and the project is estimated to hold in excess of 3.5 billion tons of the fuel, according to a presentation on Hancock’s Web site. The railroad is estimated to cost A$2.5 billion, the mine will cost A$3 billion and the port will cost A$2.5 billion.

Macquarie said in a Nov. 6 report the China First mine is estimated to cost A$3.4 billion, rail A$2 billion, port and infrastructure at A$1.8 billion and other project costs at about A$300 million.

Resource IPOs

Resourcehouse’s potential IPO comes as United Co. Rusal, the world’s largest aluminum maker, studies raising as much as $3 billion in a Hong Kong IPO by December, two people familiar with its plan said last month.

“If there is going to be an IPO in Hong Kong we will have to get a good response from investors to raise the sort of funds that we will need to do in the public market,” Palmer said.

Palmer is seeking to tap investor demand for coal and iron ore producers after the Bloomberg World Mining Index almost doubled this year because of a rebound in demand for commodities, driven by China. This quarter may be the busiest for Hong Kong IPOs since the U.S. subprime-mortgage market collapse triggered a global stocks rout in 2007.

“We’ve been very successful doing deals outside IPOs and extracting good value,” Palmer said. “To be attractive an IPO has got to be able to be a better financial alternative. I’m not sure whether they are or not at this stage.”

To contact the reporters on this story: Jesse Riseborough in Melbourne at jriseborough@bloomberg.net; Heidi Couch in Sydney hcouch@bloomberg.net.

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Sugar May Be Headed for 17% Drop, Ex-Morgan Stanley Trader Says

By Claudia Carpenter

Nov. 23 (Bloomberg) -- Sugar prices may drop 17 percent by the end of January as speculators exit the market after prices failed to repeat recent gains, according to Jean Bourlot, Morgan Stanley’s former head of agriculture trading.

Raw-sugar futures are heading for a second monthly decline after rising to a 28-year high in September on speculation that supplies would be curbed by bad weather in Brazil and India. The “risk is greater than the reward” now, and sugar is no longer a so-called asymmetrical trade that will only rise, according to Bourlot, who said rice prices may climb further.

“Although every trade house and investment bank is painting a rosy picture about sugar, we will have a nice flush very soon,” Bourlot said by e-mail last week from Sydney, where he manages his own money. “If you had bought sugar back in August, your return will have been close to zero, which is poor in three months.”

Hedge funds and other large speculators have cut net long positions, or bets on price gains, in New York raw-sugar futures to the lowest since April, according to U.S. Commodity Futures Trading Commission figures on Nov. 20. The sweetener for March delivery traded at 22.85 cents a pound on ICE Futures U.S. at 9:58 a.m. in London. The contract may fall to about 19 cents by the end of January, according to Bourlot.

Too Much Speculation

“I have been bullish on raw sugar for 18 months but believe, contrary to before, this trade is not asymmetrical any more,” he said. There is still too much speculative money in the sugar market, according to Bourlot, who worked at Morgan Stanley for 11 years until January. India and Brazil are the world’s two largest producers.

“Sugar is now the most consensual trade in the commodities space,” meaning that analysts are more in agreement about gains for raw-sugar futures than for any other commodity, he said. Bourlot advised buying March 2011 sugar futures when prices fall, citing “nonexistent” global inventories against future crop failures.

Rice may rise about 15 percent in two months, according to Bourlot, who traded oil options for Morgan Stanley for nine years in New York and London and was head of agriculture for 2 1/2 years in London. The Philippines, the world’s largest buyer of the grain, may make record purchases after storms destroyed crops.

“If you are looking for an asymmetrical trade in the commodities space, you should buy rice,” Bourlot said. Rice futures for March delivery, currently trading at 15.5 cents a pound on the Chicago Board of Trade, may rise to 18 cents by the end of January, he said.

To contact the reporter on this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net

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Gold Jumps to Record as Slumping Dollar Spurs Investment Demand

By Nicholas Larkin and Glenys Sim

Nov. 23 (Bloomberg) -- Gold jumped to a record in London and New York as a slumping dollar boosted bullion’s appeal as an alternative asset. Other precious metals also gained.

The U.S. Dollar Index, a gauge of the greenback’s value against six currencies, slid as much as 0.8 percent after Federal Reserve Bank of St. Louis President James Bullard said he supported extending the central bank’s purchases of mortgage- backed securities. Bullion climbed 32 percent this year as the currency index dropped 7.7 percent. Russia’s central bank said it bought more gold last month.

“All this buying shows no confidence in the dollar,” said Bernard Sin, head of currency and metals trading at bullion refiner MKS Finance SA in Geneva. “We’re going to see some physical demand in the festive season,” which may push prices to $1,200 an ounce, he said.

Gold for immediate delivery climbed as much as $17.28, or 1.5 percent, to $1,167.88 an ounce and traded at $1,166.03 by 11:27 a.m. in London. Gold futures for December delivery on the New York Mercantile Exchange’s Comex division increased 1.7 percent to $1,165.80 an ounce, the seventh advance in a row, after reaching $1,167.80.

The metal rose to a record $1,166 in the morning “fixing” in London, from $1,140 at the afternoon fixing on Nov. 20. Some mining companies use fixings to sell production. The metal denominated in sterling also reached a record today, climbing as high as 703.24 pounds an ounce.

‘Investor Interest’

“Investor interest has spilled over from those seeking a hedge against the dollar to other buying interests, such as central-bank buying,” said Stefan Graber, an analyst at Credit Suisse Group AG in Singapore.

Gold rallied 10 percent in the past month and is heading for a ninth annual gain, the longest winning run since at least 1948. India’s purchase of 200 metric tons from the International Monetary Fund spurred speculation other central banks will follow suit. Central banks are the biggest holders of gold.

Russia’s central bank increased its gold holding to 19.5 million ounces last month from 19 million ounces the month before, Bank Rossii said on its Web site.

Holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, were unchanged for a second day at 1,117.49 tons on Nov. 20, according to its Web site. The fund’s holdings reached a record 1,134 tons on June 1.

American Eagle

Sales of American Eagle gold coins by the U.S. Mint almost doubled in the first 10 months to 1.07 million ounces, data on its Web site showed. The mint sold 99,500 ounces of the coins so far this month. The U.K.’s Royal Mint last week said it quadrupled production of gold coins in the third quarter.

Among other precious metals for immediate delivery in London, silver climbed as much as 2.1 percent to $18.89 an ounce, a 16-month high, and last traded at $18.82. Platinum gained as much as 1.9 percent to a 14-month high of $1,473.75 an ounce and was last at $1,470.50. Palladium rose 2.2 percent to $372.23 an ounce.

Silver held in ETF Securities Ltd.’s exchange-traded products rose 0.4 percent to a record 22.634 million ounces on Nov. 20, according to the company’s Web site. Platinum holdings added 0.2 percent to a record 425,799 ounces, while palladium assets increased 1.3 percent to a record 602,793 ounces.

To contact the reporters on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net; Glenys Sim in Singapore at gsim4@bloomberg.net

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Asian Stocks Rise on China Growth Optimism, Higher Metal Prices

By Shani Raja

Nov. 23 (Bloomberg) -- Asian stocks rose for the first time in three days as the head of China’s top economic planning agency pledged to maintain “consistent, stable” policies to boost growth, while higher metal prices boosted mining companies.

China Construction Bank Corp., the nation’s second-biggest lender, gained 4.1 percent in Hong Kong after the comments by Zhang Ping, chairman of the National Development and Reform Commission. Newcrest Mining Ltd. added 3.2 percent in Sydney as gold prices rose to a record. James Hardie Industries NV, the top seller of home siding in the U.S., surged 6.4 percent after forecasting earnings at the top end of a range.

The MSCI Asia-Pacific excluding Japan Index added 1.1 percent to 411.72 as of 8:01 p.m. in Tokyo, with all 10 of its industry groups advancing. The gauge has risen 66 percent this year, on course for its steepest annual gain since 1993, as governments worldwide enacted spending programs and cut borrowing costs to revive economic growth.

“People remain positive that the recovery is in place,” said Tim Schroeders, who helps manage $1.1 billion at Pengana Capital Ltd. in Melbourne. “But we’re not getting carried away. Valuations are fairly reflective of a bullish economic environment, and you don’t need much in terms of softer-than- anticipated growth or a withdrawal of stimulus measures to make investors nervous.”

Japan’s markets were closed for a holiday. Hong Kong’s Hang Seng Index climbed 1.4 percent with only five of its 42 stocks retreating. China’s Shanghai Composite Index added 0.9 percent. Australia’s S&P/ASX 200 Index rose 0.7 percent, with Rio Tinto Group climbing 3.6 percent after metal prices in London advanced. South Korea’s Kospi Index lost 0.1 percent.

U.S., China

Futures on the Standard & Poor’s 500 Index rose 1 percent. The index slipped 0.3 percent on Nov. 20 as earnings at Dell Inc. and D. R. Horton Inc. trailed estimates and concern grew that the European Central Bank will phase out stimulus measures.

ECB President Jean-Claude Trichet said Nov. 20 the central bank will remove liquidity in order to ensure the bank doesn’t fuel inflation.

China Construction Bank gained 4.1 percent to HK$7.40 and was the biggest contributor to the MSCI index’s advance. Industrial & Commercial Bank of China Ltd., the nation’s largest lender, added 3.3 percent to HK$6.97.

China will focus on expanding domestic demand and keep “consistent, stable” macroeconomic policy including fiscal and monetary expansion, the NDRC’s Zhang said at an American Chamber of Commerce event in Beijing on Nov. 20. China should be able to achieve its 8 percent growth target for this year, Zhang said.

Government Spending

The Organization for Economic Cooperation and Development on Nov. 19 raised its forecast for economic growth in China this year to 8.3 percent from 7.7 percent. Growth will accelerate in 2010 to 10.2 percent, the OECD said in a report.

Four trillion yuan ($586 billion) of government spending and $1.3 trillion of new bank lending this year have helped revive growth in China, the world’s third-largest economy.

All 10 industry groups in the MSCI index rose, led by materials stocks. Newcrest Mining climbed 3.2 percent to A$37, Lihir Gold Ltd. added 3.4 percent to A$3.70, and Zijin Mining Group Co., China’s largest gold producer, increased 4.8 percent to HK$8.80 in Hong Kong. The precious metal climbed for a seventh straight session in after-hours trading today to as much as $1,167.80 an ounce.

A measure of six industrial metals traded in London, including aluminum and copper, advanced 0.7 percent on Nov. 20, bringing gains last week to 4.6 percent. BHP Billiton Ltd., the world’s biggest mining company, rose 1.1 percent to A$40.46, and Rio Tinto, the third-biggest, climbed 3.6 percent to A$73.78.

James Hardie Forecast

James Hardie jumped 6.4 percent to A$7.87. The maker of building materials said profit excluding compensation payments to asbestos victims will be closer to the top analyst forecast of $115 million. The lower end of the range was $77 million.

This year’s gain in the MSCI Asia-Pacific Excluding Japan has swelled the price of its stocks to 17.7 times estimated earnings on average, from 8.2 times in October 2008, according to data compiled by Bloomberg. That compares with valuations of 17.3 times for the Standard & Poor’s 500 Index in the U.S. and 15.2 times for the Dow Jones Stoxx 600 Index in Europe.

Among stocks that fell, Hanjin Shipping Co., South Korea’s largest shipping line, dropped 2.9 percent to 18,200 won after the Baltic Dry Index, a measure of shipping rates for commodities, ended a 16-session streak that propelled it 56 percent higher. STX Pan Ocean Co., South Korea’s biggest bulk carrier, slipped 4.2 percent to 11,550 won.

“The global economy, whilst in recovery mode, is still vulnerable,” said Chris Weston, an institutional dealer at IG Markets in Melbourne. “Take away the stimulus at the wrong time and it could send it back into a double-dip scenario.”

Sims Metal Management Ltd. fell 4.1 percent to A$21.29 in Sydney after the world’s biggest recycler of scrap metal completed a A$400 million ($369 million) share sale.

To contact the reporter on this story: Shani Raja in Sydney at sraja4@bloomberg.net.

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European, Asian Shares Advance; U.S. Stock-Index Futures Rise

By Adam Haigh

Nov. 23 (Bloomberg) -- European and Asian shares advanced and U.S. stock-index futures rose amid speculation the economic recovery is strengthening and as higher commodity prices boosted the earnings outlook for raw-material producers.

BHP Billiton Ltd. and Rio Tinto Group climbed at least 3 percent in London as copper and oil gained. Renault SA, Europe’s second-biggest automaker, increased 4.3 percent after Credit Suisse Group AG advised buying the shares. James Hardie Industries NV, the top seller of home siding in the U.S., surged 6.4 percent in Sydney after forecasting full-year earnings at the top end of a range of analyst estimates.

Europe’s Dow Jones Stoxx 600 Index advanced 1.5 percent to 247.22 at 10:20 a.m. in London as all 19 industry groups rose. The gauge has surged 56 percent since March 9 as governments worldwide enacted spending programs and cut borrowing costs to revive economic growth. The rally has pushed the index to more than 53 times its companies’ reported earnings, near the highest level since 2003, according to Bloomberg data.

“Valuations are really not that excessive and you have a good stimulus coming from monetary policy at the moment,” said Lucy MacDonald, chief investment officer at RCM UK Ltd., which has about $72 billion in assets under management. She spoke in a Bloomberg Television interview.

Standard & Poor’s 500 Index futures gained 1 percent before a report that may show sales of existing U.S. homes increased. The MSCI Asia-Pacific Excluding Japan Index rose 1 percent. Japan’s markets were closed for a holiday.

European Economy

Europe’s services and manufacturing industries expanded at the fastest pace in two years in November after a reviving global economy helped the euro region emerge from the worst recession in more than 60 years.

A composite index based on a survey of purchasing managers in services and manufacturing in the 16-nation euro area rose to 53.7 from 53 in October, London-based Markit Economics said today. A reading above 50 indicates expansion. The German, French and Italian economies have exited recession this year amid about $12 trillion in spending by governments worldwide and record low-interest rates.

“We are rather confident in developed-market equities and we don’t see any reason to starting reducing our position,” said Andrew Popper, London-based chief investment officer at SG Hambros Bank Ltd. “We aren’t in the midst of an asset bubble as far as the developed markets are concerned.”

Mining Companies

BHP Billiton, the world’s largest mining company, added 3 percent to 1,862 pence, leading a measure of basic-resource producers to the steepest increase among 19 industry groups in the Stoxx 600. Rio Tinto, the third-biggest, gained 3.7 percent to 3,264.5 pence.

Copper advanced as much as 2.4 percent in London and prices of lead, nickel and zinc climbed. Newcrest Mining Ltd., Australia’s largest gold producer, rose 3.2 percent to A$37 in Sydney and Randgold Resources Ltd. rallied 4.1 percent to 5,155 pence as gold jumped to a record.

Total SA, Europe’s third-biggest oil company, surged 2.1 percent to 42.32 euros as crude increased.

The S&P GSCI index of 24 commodities rose 1.3 percent in London, extending its annual advance to almost 48 percent, the best performance since 1973.

Renault, which owns 44 percent of Yokohama-based Nissan Motor Co., gained 4.3 percent to 33.36 euros. Credit Suisse raised its recommendation on the shares to “outperform” from “underperform,” citing “exposure to fast improving cash flows” at Nissan.

James Hardie

James Hardie jumped 6.4 percent to A$7.87. The company said profit excluding compensation payments to asbestos victims will be closer to the top analyst forecast of $115 million. The lower end of the range was $77 million.

Cadbury Plc rose 1.9 percent to a record of 815.5 pence after Nestle SA was said to weigh a takeover, the Wall Street Journal said Hershey Co.’s controlling trust wants the U.S. company to make an offer, and Reuters reported that Kraft Foods Inc. may raise its bid.

Sales of existing U.S. homes probably increased in October to the highest level in more than two years, spurred in part by a tax credit that lured first-time buyers, economists said before a National Association of Realtors report due at 10 a.m. in Washington. Purchases rose 2.3 percent to a 5.7 million annual rate, according to the median forecast of 60 economists surveyed by Bloomberg News.

For the first time since the equity rally began in March, the biggest U.S. stocks are beating the smallest as the dollar’s descent sends investors to companies with the most business in international markets.

The Dow Jones Industrial Average of companies with $111.4 billion in median market value rose 6.2 percent this quarter, compared with the 2.6 percent loss by the S&P SmallCap 600 Index, whose members are worth $572.3 million on average. The Dow had trailed by 26 percentage points following the stock market’s low on March 9.

To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net

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China Dismissive Of Their Role In Yuan Valuation

Daily Forex Fundamentals | Written by AC-Markets | Nov 20 09 10:53 GMT |

News and Events: The consolidation of the USD and moderation in risk appetite continues today as a barren data schedule provides little impetus for a break out in major currency pair ranges. Today's docket is solely occupied with policy maker speeches, but even yesterday's offerings from Geithner, Fisher and Trichet were muted in impact on FX markets. The most newsworthy element from Geithner's address to the Joint Economic Committee yesterday was the palpable sense of frustration at a lack of progress on China' attitude to yuan valuation and global rebalancing. As much as US officials may wax lyrical on the progress made by President Obama's visit to the Far East, the fact remains that the Chinese have little to no motivation to change tack on their currency stance now, and as such, the CNY is not going anywhere. To further undermine the alleged progress US officials have made on the issue, overnight comments from China central bank Governor Zhou Xiaochaun made the analogy of China's involvement in the currency as 'like watching a tournament'. He expanded further that 'We just watch the game. Regardless who wins or loses, the issue of whether the winner or loser benefits the spectator doesn't arise'. Hardly rhetoric likely to encourage progress on the issue. For the rest of the day, only Trichet's speech in Frankfurt remains to watch, and of course the possible expiry of the rumoured EURUSD option structure with barriers at 1.4800 and 1.5100. All signs point to a slow day's trading ahead Today Key Issues: 10:30 EUR ECB Trichet Speaks In Frankfurt The Risk Today: EurUsd The range trade continues as we consolidate between 1.4800 and 1.4990; and with very little momentum provided by the light news calendar, there remains decent support and resistance building up at those levels. Only an hourly close above 1.4994 or break lower through 1.4800 negates this scenario. GbpUsd As we guessed yesterday, GBPUSD broke through the1.6663 support and rising wedge uptrend yesterday and now looks to target 1.6272 support below where the lower limit of the bullish trend comes in. Near term resistance comes in at yesterday's high 1.6745, but a break above there would suggest a possible test of 1.6870. UsdJpy The downtrend remains firmly entrenched as recent support turned ressistance at 89.10 capped the pair overnight. Expect the downwards momentum to retest 88.60 near term support, and after that a look at 88.00 resistance. UsdChf The pattern of higher lows over the week looks to be forming an ascending traingle formation with horizontal ressitance in that 1.0186 - 1.0205 zone; an area of supply that has so far contained rallies on the last 6 attempts. The 1 week uptrend comes in around 1.0110 to provide near-term support, but clearance of 1.0205 is still needed to pull USD bulls into the pair EURUSD GBPUSD USDJPY USDCHF 1.5100 1.6900 91.50 1.0360 1.5062 1.6840 90.05 1.0290 1.5046 1.6745 89.10 1.0200 1.4875 1.6550 88.95 1.0165 1.4810 1.6515 88.60 1.0034 1.4700 1.6460 88.00 1.0000 1.4626 1.6272 87.15 0.9890 S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot ACM FOREX Disclaimer: This report has been prepared by AC Markets (thereof ACM) and is solely been published for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any currency or any other financial instrument. Views expressed in this report may be subject to change without prior notice and may differ or be contrary to opinions expressed by Salesperson or Traders of ACM at any given time. ACM is under no obligation to update or keep current the information herein, the report should not be regarded by recipients as a substitute for the exercise of their own judgment.

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Forex Technical Analysis

Daily Forex Technicals | Written by DeltaStock Inc. | Nov 20 09 10:18 GMT |

EUR/USD Current level-1.4901 EUR/USD is in a broad consolidation, after bottoming at 1.2331 (Oct.28,2008). Technical indicators are neutral, and trading is situated above the 50- and 200-Day SMA, currently projected at 1.4793 and 1.3523. The overall bias here is neutral with a slightly bearish pressure while the 1.4796 support is still on test. Intraday resistance comes at 1.4972 and is likely to be tested before the beginning of the U.S. trading session, but only a clear break above 1.5015 will set the focus back on new highs, beyond 1.5063 Resistance Support intraday intraweek intraday intraweek 1.4972 1.5290 1.4842 1.4623 1.5015 1.6040 1.4796 1.4444 USD/JPY Current level - 88.89 A short-term bottom has been set at 87.12 and a large consolidation is unfolding since. Trading is situated below the 50- and 200-day SMA, currently projected at 94.86 and 94.84. The pair is in a minor consolidation pattern in the 89.16-88.61 area, before one more dip to 88.21 reversal point. Resistance Support intraday intraweek intraday intraweek 89.53 92.40 88.73 88.01 90.75 97.79 88.21 83.53 GBP/USD Current level- 1.6569 The pair is in a downtrend after peaking at 1.7042. Trading is situated above the 50- and 200-day SMA, currently projected at 1.6454 and 1.5258. The break below 1.6627 support has set the focus on 1.6515 major support and we are rather neutral here, as only a break above 1.6675 will bring the positive outlook back on the charts. Intraday bias is negative with a resistance at 1.6619 and crucial level at 1.6674. Resistance Support intraday intraweek intraday intraweek 1.6619 1.7042 1.6515 1.6515 1.6840 1.7442 --- 1.5706 DeltaStock Inc. - Online Forex & Securities Broker www.deltastock.com RISK DISCLAIMER: These analyses are for information purposes only. They DO NOT post a BUY or SELL recommendation for any of the financial instruments herein analyzed. The information is obtained from generally accessible data sources. The forecasts made are based on technical analysis. However, Delta Stock’s Analyst Dept. also takes into consideration a number of fundamental and macroeconomic factors, which we believe impact the price moves of the observed instruments. Delta Stock Inc. assumes no responsibility for errors, inaccuracies or omissions in these materials, nor shall it be liable for damages arising out of any person's reliance upon the information on this page. Delta Stock Inc. shall not be liable for any special, indirect, incidental, or consequential damages, including without limitation, losses or unrealized gains that may result. Any information is subject to change without notice.

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Thai Recession Probably Eased Amid Global Recovery

By Suttinee Yuvejwattana

Nov. 20 (Bloomberg) -- Thailand’s economy probably contracted the least in a year last quarter as a nascent global recovery and government spending began to pull the nation out of its first recession in a decade.

Gross domestic product fell 3.2 percent in the third quarter from a year earlier, after contracting 4.9 percent in the previous three months, according to the median estimate of 16 economists surveyed by Bloomberg News. The government will release the data on Nov. 23 at 9:30 a.m. in Bangkok.

The benchmark stock index has risen two straight quarters since the start of April and the baht gained 4.5 percent against the U.S. dollar this year as companies including Hana Microelectronics Pcl report rising orders. Prime Minister Abhisit Vejjajiva said yesterday the government will pursue its stimulus spending plans amid lingering “political problems.”

“A gradual global recovery, fiscal stimulus packages and easy money policy are resulting in improved GDP performance,” said Luz Lorenzo, an economist at ATR-Kim Eng Securities Inc. in Manila. “The improvement will be gradual. This is barring any grave political developments.”

Singapore, which raised its 2009 GDP estimate in October, said yesterday its economy will grow 3 percent to 5 percent in 2010 after shrinking as much as 2.5 percent this year. Malaysia may report today that its recession eased last quarter, according to a Bloomberg News survey.

Interest Rates

The Bank of Thailand said last month Southeast Asia’s second-largest economy is “out of recession”, citing improving employment and quarter-on-quarter GDP expansion. Still, the central bank refrained from raising borrowing costs for a fourth straight meeting on Oct. 21 as it judged the nation’s economic recovery to be at “an early stage.”

There may be cause to keep interest rates low for a while as economists including Morgan Stanley Asia Chairman Stephen Roach say the global recovery faces risks.

“My outlook remains extremely cautious although we can see the worst is over” for the global economy, Roach said in Singapore today. Asian economies are still too export dependent, he said.

Thailand’s consumer confidence fell for the first time in five months in October on concern that the economic recovery may be derailed by rising oil prices, politics and a court case that has stalled 76 government-approved projects on pollution complaints.

Political Risk

At least five people were injured after a bomb exploded at a Nov. 15 protest against former Prime Minister Thaksin Shinawatra, the Nation newspaper reported this week. Power in Thailand has shifted between parties allied to Thaksin and his opponents since the 2006 coup that ousted him, with protests and leadership changes hurting successive governments’ ability to implement spending plans.

Abhisit’s government has managed to stay in power for almost a year and implemented a 116.7 billion-baht stimulus package in the first half of 2009. It plans to spend 1.3 trillion baht on transportation, logistics, health and education projects over three years to help revive the economy.

The fiscal spending helped “stop the economic contraction” and prevented unemployment from jumping, Abhisit said Nov. 16.

“Our only concern is politics,” said Santi Vilassakdanont, chairman of the Federation of Thai Industries. “If the political stability continues like this, the economy can move ahead. If not, things may turn bad again.”

Return to Growth

The government expects the Thai economy to return to growth this quarter. Thailand’s exports dropped the least in 11 months in September as more than $2 trillion in stimulus by governments worldwide helped revive global demand.

Hana Microelectronics, which makes parts for computers and mobile phones including Apple Inc.’s iPhone, has restored its workforce to “pre-crisis” levels and will spend about $20 million by March 31 to expand capacity and meet rising demand, Chief Executive Officer Richard Han said.

“We continue to see robust demand,” said Han. “We expect the fourth-quarter performance to be an improvement over last year.”

The central bank has kept its benchmark interest rate unchanged at 1.25 percent since cutting it by 2.5 percentage points from December to April. Thai consumer prices rose for the first time in October after falling for nine consecutive months.

“The recovering global economy will lead to improving exports and tourism,” Abhisit said yesterday. “The government is also committed to spend money under our stimulus plan. Everything still goes as planned despite political problems” that may persist into next year, he said.

To contact the reporters on this story: Suttinee Yuvejwattana in Bangkok at Suttinee1@bloomberg.net

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Zhou Says China ‘Passive’ as Dollar Drop Pulls Yuan

By Bloomberg News

Nov. 20 (Bloomberg) -- China is “passive” on the value of the U.S. dollar, central bank Governor Zhou Xiaochuan said, signaling that policy makers aren’t yet prepared to loosen controls on the yuan.

“It’s like watching a tournament,” Zhou said at the BusinessWeek CEO Forum in Beijing today. “We just watch the game. Regardless who wins or loses, the issue of whether the winner or loser benefits the spectator doesn’t arise.”

Zhou’s comments came hours after U.S. lawmakers pushed for a tougher stance from President Barack Obama’s administration after he left Beijing this week without a commitment to let the exchange rate strengthen. The yuan has tracked the U.S. Dollar Index’s 7.3 percent decline against six major currencies this year because China restored a peg in July 2008.

“Zhou’s words may indicate China won’t let the yuan float in the short-term,” said Shi Lei, a Beijing-based financial market analyst at Bank of China Ltd.

Twelve-month non-deliverable yuan forwards were little changed at 6.6365 per dollar as of 10:50 a.m. in Hong Kong, according to data compiled by Bloomberg. The contracts are down 0.74 percent since Nov. 13, set for the biggest weekly decline since December.

China has kept the yuan about 6.83 per dollar after allowing a 21 percent advance over three years. Zhou said today that the level of the dollar is contingent on the global and U.S. economy. Asked whether a weak dollar is good or bad for China, he said “we are passive in the matter of the dollar’s level.”

U.S. Goal

Treasury Secretary Timothy Geithner said at a hearing in Washington he’s “quite confident” China will move to relax currency controls. Jon Huntsman, the American ambassador to China, told Bloomberg Television this week that Obama told President Hu Jintao and Premier Wen Jiabao the U.S. expects progress on making the yuan “more flexible” by mid-2010.

Zhou also said today that Chinese policy makers are “flexible” about the need to maintain stimulus measures, indicating that decisions on the matter would be affected by the strength of economies abroad.

“There are signs of recovery, we will continue to maintain the moderately loose monetary policy and expansionary fiscal policy for a while,” Zhou said. “But we should also be flexible. We will monitor the economies of the U.S., EU, Japan and the emerging markets. We will have to monitor the pace of recovery in the world economy.”

Helping China

Robert Mundell, a Nobel laureate in economics, said at the Beijing conference that the Federal Reserve’s interest-rate cuts and a weakening dollar have helped secure China’s economic recovery.

Mundell, a Columbia University professor, said that global policy makers should be “very cautious about the effects of the exit policy” on the world’s economy.

Any gains in the yuan may hamper a recovery in the global economy, a professor at China’s Tongji University wrote in an article published today in the state-owned People’s Daily newspaper.

Exchange rates in the world’s major economies shouldn’t be altered “abruptly” as the global recovery isn’t “stable,” Shi Jianxun wrote in the international edition of the paper owned by China’s Communist Party.

Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., said Chinese growth is likely to be hurt by an absence of consumer demand from trading partners such as the U.S.

Chinese ‘Bubble’

“The Chinese, I suspect, will have a bubble of their own to confront,” Gross said in a Bloomberg Television interview yesterday from Pimco’s headquarters in Newport Beach, California. It’s gearing up for export that doesn’t find an end consumer, that’s the real problem in China.”

At the congressional Joint Economic Committee hearing, Senator Charles Schumer, a New York Democrat, said he’s “not happy” about a lack of movement on China’s yuan stance and called its policies “mercantilist.”

Senator Sam Brownback, a Kansas Republican, opened the session by urging Geithner to “get the stick out” and “do something” to get China to move faster.

“The dollar is clearly under attack and as is usually the case when the currency of any country is under attack, the officials want to point the finger at someone else,” Stephen Roach, chairman of Morgan Stanley Asia, said in Singapore today.

“The tensions between the fate of the dollar and the renminbi underscore my own concerns about the biggest risk that the world does face over the next couple of years and that is the possibility of a more explosive clash on trade policy between the U.S. and China.”

Zhou also said today that China hasn’t abandoned plans to make the yuan convertible.

To contact the Bloomberg News staff for this story: Eugene Tang at eugenetang@bloomberg.net

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Crude Oil Falls in New York as U.S. Dollar Gains Versus Euro

By Will Kennedy

Nov. 20 (Bloomberg) -- Crude oil fell for a second day in New York as the dollar gained versus the euro, dimming the lure of commodities as a currency hedge.

Oil for December delivery dropped as much as 55 cents, or 0.7 percent, to $76.91 a barrel in electronic trading on the New York Mercantile Exchange. The contract traded at $76.92 a barrel at 9:52 a.m. London time.

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Volkswagen Backs Porsche Contracts in Move on Merger

By Andreas Cremer

Nov. 20 (Bloomberg) -- Volkswagen AG’s supervisory board signed off on contracts for its takeover of Porsche SE in stages, clearing the way for Europe’s largest automaker to add the 911 sports car to its model lineup.

The company’s supervisory board approved contracts of implementation relating to the comprehensive agreement with Porsche, it said in a statement on its Web site. These contracts “specify the binding provisions governing the organizational, structural and legal details of the union between the two companies,” it said. Porsche will meet today to discuss the contracts, it also said.

The approval of legal merger documents will allow Volkswagen to proceed with buying Porsche’s automaking division. The Wolfsburg, Germany-based carmaker said on Oct. 20 that it will pay 3.9 billion euros ($5.8 billion) for a 49.9 percent stake in the Porsche unit by the end of this year in the first phase of a combination to be completed by 2011.

Porsche’s supervisory board, including members of the Porsche and Piech families that control the Stuttgart, Germany- based company, plans to meet in Wolfsburg, also to approve the contracts, said Albrecht Bamler, a spokesman. Ratification will allow Volkswagen Chief Executive Officer Martin Winterkorn to run Porsche’s holding company and Chief Financial Officer Hans Dieter Poetsch to take a seat on the management board.

“Volkswagen is moving forward in its quest to become No. 1 in global auto building,” said Stefan Bratzel, head of the Center of Automotive Research Institute in Bergisch-Gladbach, Germany, before the VW board met. “This merger implies enormous synergies.”

Four-Year Feud

Winterkorn has a target for VW to overtake Toyota Motor Corp., the world’s biggest automaker, in deliveries and profit margins by 2018. Porsche will become the 10th brand at VW, which also owns the Audi luxury division in Germany as well as sports- car maker Lamborghini in Italy and Crewe, England-based Bentley.

Volkswagen and Porsche agreed in August to merge, ending a four-year feud for control. The combination involves an investment by Qatar, which has bought 10 percent of the voting rights in Porsche and will eventually own 17 percent of the merged carmaker.

The settlement was reached after debt at Porsche tripled to more than 10 billion euros in six months following the company’s failed takeover of Volkswagen. Porsche owns 53 percent of Volkswagen common stock, which carries voting rights.

‘Milestones’

“The multi-stage process is to culminate in the merger of Volkswagen AG and Porsche SE during the course of 2011,” Volkswagen said in the statement. “The next milestones are a 49.9 percent participation of Volkswagen in Porsche AG which is planned for realization by the end of 2009.”

Volkswagen will ask shareholders on Dec. 3 to approve a sale of preferred stock to help finance the Porsche purchase. Investors will vote at an extraordinary meeting in Hamburg on authorizing the sale of as many as 135 million shares over the next five years. Qatar said on Nov. 9 that it was reducing its holding of the preferred shares.

Porsche had a pretax loss of 4.4 billion euros in the 12 months through July 31 after writing down the value of options on Volkswagen shares. Full-year revenue fell 12 percent to 6.6 billion euros. The company is scheduled to hold a news conference on Nov. 25 in Stuttgart to give details on fiscal- 2009 figures.

Volkswagen’s supervisory board will discuss a possible purchase of assets from insolvent specialty carmaker Wilhelm Karmann GmbH when it reconvenes at 9 a.m., two people familiar with the situation have said.

Negotiators for VW and Karmann failed in previous meetings to narrow the gap between the minimum 55 million euros that Osnabrueck, Germany-based Karmann is seeking for assets including assembly halls, production facilities and a paint shop and the 35 million euros that VW has indicated it may be willing to pay, the people have said.

To contact the reporter on this story: Andreas Cremer in Berlin at acremer@bloomberg.net.

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U.K. Housing Market May Not Recover Peak Until 2014

By Peter Woodifield

Nov. 20 (Bloomberg) -- U.K. house prices will probably fall next year, and it may take until 2014 to return to the levels at the 2007 peak of the country’s biggest housing boom, according to a Bloomberg survey.

Nine of 14 economists and real estate brokers surveyed said they foresee a decline in 2010 after a surprise rebound this year. They predict an average drop of about 1.6 percent, with estimates ranging from a loss of 10 percent to a rise of the same magnitude.

“The market is still overvalued, whichever measure you use,” said Seema Shah, a housing economist at Capital Economics Ltd., a research group in London, who was the most bearish in the survey. “Prices need to fall a further 20 percent to 25 percent to get back their long-term trend.”

A 7 percent gain in average prices since April was driven by a shortage of properties for sale and won’t be sustained, according to Shah. Most survey respondents said they don’t think the rally can last while Britain’s longest recession on record fuels unemployment and makes banks reluctant to lend.

Prices plunged 23 percent from September 2007 to April this year, according to Lloyds Banking Group Plc’s Halifax unit, after losses on U.S. subprime mortgages led global credit markets to seize up. They remain at 2005 levels.

For all of 2009, the average home will probably increase about 5 percent in value, to almost 161,000 pounds ($270,000), said Martin Gahbauer, Nationwide’s chief economist. Martin Ellis, chief economist of Halifax, Britain’s biggest provider of home loans, expects prices to be little changed.

120-Foot Garden

That’s no solace to sellers like Nicola Brookbanks, 37. She and her partner put their one-bedroom apartment in the Ealing district of London on the market almost three months ago so they could buy a house in nearby Acton with more space for their 14- month-old son. They bought the apartment, which has a 120-foot- long (37-meter) garden, for 315,000 pounds in March 2007.

After more than 60 viewings, and cutting the price by 25,000 pounds to 325,000 pounds, Brookbanks and her partner accepted their first offer of 318,000 pounds on Nov. 16. The transaction has yet to close.

“I am pretty surprised it has taken this long to get an offer,” she said.

U.K. residential real estate had almost tripled in value during the decade before the credit crunch. The gains encouraged more Britons to pour borrowed money into homes and more “buy- to-let” investors to acquire property for rental income.

6.2 Times Earnings

At the market’s height, banks were financing loans as large as five times a borrower’s salary. That lifted the average price to a record 6.2 times earnings, compared with the long-term average of 3.7 times, according to Capital Economics. The ratio has since fallen to 5.2.

U.S. house prices, by contrast, are at their most affordable for at least 28 years, according to Lawrence Yun, chief economist of the Chicago-based National Association of Realtors. The average price of an American home is 2.4 times income, down from the high of almost 3.4 times in 2006.

Even at the peak of the U.K.’s previous housing boom, which ended in 1989, the ratio was only 4.7. Values then took four years to fall 13 percent and didn’t return to pre-crash levels until January 1998, almost nine years later.

“There is a problem with very high house prices, and getting over it is probably a good thing,” said Martin Weale, director of the London-based National Institute of Economic and Social Research. “I am optimistic that we will move back to a more normal level.”

Out of Work

Claimants for jobless benefits in the U.K. have more than doubled since March 2008, to 1.64 million. They may climb 17 percent more by the end of 2010 to 1.92 million, according to the average of 37 forecasts compiled by the U.K. Treasury.

“We are cautious on the outlook for the housing market and believe anticipated growth in unemployment throughout next year will apply downward pressure on house prices,” Graham Beale, chief executive officer of Nationwide Building Society, said on a conference call with reporters today.

There are already signs that the rally may be petering out. Prices in October rose by the smallest amount in six months, or 0.4 percent, according to Nationwide Building Society.

Sellers reduced asking prices for the first time in three months in the four weeks to Nov. 7 as demand dwindled before the Christmas holidays, said Rightmove Plc, the owner of the U.K.’s largest residential property Web site.

Prime London

This year’s recovery has been fueled by competition for the limited supply of London homes costing more than 1 million pounds, according to London-based broker Knight Frank LLP. Wealthy cash buyers have been lured by lower prices and the decline of the pound against currencies including the euro, dollar and Chinese yuan in the past two years.

In parts of central London, such as Chelsea and South Kensington, prices for the best properties are already back to 2007 levels, according to Robert Green, a partner at John D Wood & Co. Further behind are regions such as the West Midlands -- which includes Birmingham, the U.K.’s second-largest city -- where prices will take until 2015 to return to their peak, Knight Frank predicts.

“The recent rise we have seen is all about the imbalance between supply and demand, with very few properties coming on the market,” said Capital Economics’ Shah.

Rightmove has listed 934,000 homes for sale so far this year, a 45 percent decrease from the same period of 2007, said Tom McGuigan, the company’s spokesman.

Few Transactions

House sales in England and Wales fell to 26,662 in January, the lowest in at least 14 years, according to the Land Registry. In the first seven months of the year, they averaged 40,448 a month, or 61 percent less than in the same period of 2007.

The number of U.K. mortgage approvals is still half of what it was at the market’s peak, Bank of England data show.

Michael Saunders, chief economist for western Europe at Citigroup Inc., was the most optimistic in Bloomberg’s survey. He said recent nationwide price gains show that the British housing market could surprise again and rise in 2010.

Saunders, who predicted a 10 percent drop in 2009 at the start of the year, expects prices to appreciate 5 percent to 10 percent next year.

“You have had a test case, which tells you that low interest rates can outweigh the labor market,” Saunders said. “I changed my mind because of the data. Housing has been surprisingly strong.”

From October 2008 to March, the Bank of England cut its main borrowing rate to a record low of 0.5 percent from 5 percent, as part of a global effort to rescue the world financial system.

25% Deposits

For some potential house buyers, low interest rates don’t matter if the down payment is unaffordable. Lenders burned by the financial crisis are typically demanding deposits of 25 percent. During the housing bubble, the typical down payment was 5 percent, and buyers sometimes didn’t have to make any deposit at all.

With first-time buyers in London paying an average of about 180,000 pounds for a property, that means they have to put down 45,000 pounds in cash to get a mortgage.

Two years ago, Graeme Oliver, 45, and his partner had a mortgage lined up to buy a home in London that only required a 5 percent down payment. They scrapped their plans after she became pregnant because the property wasn’t suitable for a child.

Now the two physiotherapists, who together earn 80,000 pounds a year, will have to make a deposit at least three times that size to get on the property ladder, he said. To manage that, they’d have to borrow from his family.

They have put plans for a move on hold because they can’t afford anything suitable for a family. Oliver said he anticipates that more job cuts in London, particularly in public services, will lead to more house repossessions and lower prices.

“If the market doesn’t dip significantly in this part of the world, we will continue renting, probably for the rest of our lives,” he said. “I can’t see how it is possible house prices won’t be lower in a year’s time.”

The following table lists estimates for 2010 house prices and projections for when the market will return to 2007 levels.

Firm                     2010 (%)       Estimated Return
                        Forecast       to Peak Prices

Capital Economics        -10            2019
Fitch                    -6 to -8       2016/2017
Savills                  -6.6           2014
RICS                     -5             2012
Knight Frank             -3             2014
NIESR                    -3             2015
Deutsche Bank            -2             2016
Cluttons                 -1.5           2014
RBS                      -1             2013
Investec                  0             2012/2013
Halifax                   0             No estimate
BNP Paribas               3.5           2013
CEBR                      4             2013
Citigroup                 5 to 10       2012

To contact the reporter on this story: Peter Woodifield in Edinburgh at pwoodifield@bloomberg.net.

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